Turkey, US Discuss Iran Sanctions

Turkish and US officials have met to discuss the planned re-imposition of sanctions against Iran, from which Turkey imports and annual 9.6bn m³/yr of gas under a contract which became active in July 2001 and which runs to July 2026. Turkish media reported that Turkish officials met with a delegation led by US the assistant secretary of the Treasury for Terrorist Financing Marshall Billingslea in Ankara on July 20th.

The talks follow the decision two months ago by the Trump administration to revoke the 2015 Iran nuclear pact signed by his predecessor Barack Obama and other world leaders and to re-impose wide ranging sanctions against the Islamic republic.

No details of the meetings have been released, but speaking to reporters July 24, Turkey's foreign minister Mevlut Cavusoglu repeated Ankara's position, outlined three weeks ago, that Turkey does not favour the re-imposition of sanctions. Turkish daily Hurriyet quoted Cavusoglu saying: “We have told them we will not join these sanctions.”

Ankara's position appears unlikely to curry favour in Washington and is likely to signal the start of a difficult period of negotiation between the two countries.

Under the previous round of international sanctions against Iran, Turkey's gas imports were exempted, on the grounds that they were a vital component of the country's energy security, and could not be replaced by supplies from other sources. Energy sanctions were restricted to crude oil imports, which were subject to an enforced 20% reduction, and to obliging importers Botas (gas) and Tupras (crude oil) to make payments into accounts held by Turkey's state owned Halkbank, from where the money was barred from being transferred back to Tehran.

To date there has been no indication from Washington that the US will allow the same exemption this time round and any move to include gas in the sanctions package would spell serious difficulties for Turkey, whose gas demand in 2017 rose 19.2% to 55.25bn m³, of which 4.94bn m³ was spot LNG. Imports from Iran totalled 9.36bn m³, a sixth of the total. 

This year has seen the commissioning of the TransAnatolian Pipeline but even when supplying Turkey with the full contracted 6bn m³/yr, Iran imports will still constitute around that percentage of Turkey's current long term gas supply portfolio, suggesting that over gas at least Ankara has little room for manoeuvre.

For its part, Washington's attitude is likely to be hardened by the exposure four years ago of a Turkish scheme to bypass the restrictions on transferring payment for oil and gas back to Tehran.

That scheme, the details of which are still unclear, but appear to have been officially approved, saw payments deposited at Halkbank used to buy gold bullion and other products which could be transferred easily to Iran. In January this year a New York court jailed the deputy CEO of Halkbank, Hakan Atilla, for 32 months, on charges of involvement in the scam, while Turkish-Iranian businessman Reza Zarrab, who is alleged to have masterminded the scheme, remains behind bars having reportedly agreed to a plea bargain which may or may not have implicated those who signed off on the scheme.

Ankara may be trying to play tough by signalling its refusal to fall in line with Washington's new sanctions plan, but there are other points of contention between the two Nato members, and with Washington's November deadline for imposition looming, time is fast running out .

Those issues include Ankara's plan to buy Russian S-400 missiles, a move which has angered its Nato partners; and the arrest of a US cleric based in Turkey who has been charged with helping Kurdish rebels. Ankara has been accused of resorting to tit-for-tat tactics: it wants the US to hand over the rogue Turkish cleric Fetullah Gulen, alleged to be behind the failed July 2016 coup attempt against the president.

Reports indicate that Ankara may now be willing to buy US patriot missiles in place of the S-400s but that is unlikely to be sufficient to cut a deal on sanctions.

With Gulen's fate reportedly controlled by the US court system, and not the Trump administration, Washington has already called on international lenders to halt loans to Turkey pending the release of the jailed US cleric. A move which could just be sabre rattling, but which could equally signal an unwillingness to compromise. Without any assurances over an exemption for Turkey's Iran gas imports, the assumption has to be that they are still under discussion, and that Ankara may yet have to make plans for losing up to 17% of supply by next winter, or face the possible imposition of stiff penalties.

Turkish natural gas imports (bn m³/yr) 

Source: Turkish energy regulator (EPDK)